Good Chemistry in the Supply Chain

Oct. 13, 2003
Shippers of all types of productscan learn a lesson or two from the chemical industry — these companies havebecome the de facto experts in dealing with compliance rules and regulations,safety and security measures

Shippers of all types of productscan learn a lesson or two from the chemical industry — these companies havebecome the de facto experts in dealing with compliance rules and regulations,safety and security measures, and supply chain monitoring. As chemical productsmove from the supplier to the customer, every point along the way represents alogistical challenge.

“We stay current with existing andever-changing government regulations regarding chemicals as they relate both totransportation and warehousing activities,” says Steven Feliccia, director ofcorporate logistics for $3 billion polymer manufacturer and distributor PolyOne Corp. “We make sure we provideproper training to our internal associates, and we also monitor the activitiesof our third-party logistics providers [3PLs] and warehouse operationsprovider.”

PolyOne is held accountable for itscompliance with regulations, so it has a vested interest in making sure itssupply chain partners are equally held accountable, Feliccia says. PolyOne provide its customers with a singlesource for polymer, elastomer, color, and other additive products. Itssuppliers include familiar names like Bayer,Dow Chemical, BP Amoco, DuPont and ChevronPhillips, among others.

Feliccia sees technology as crucial to efficientlymanaging logistics operations, providing order visibility throughout the entiresupply chain. “Logistics performance reporting to our supply chain partners —particularly our customers — would not be possible without some of thetechnology improvements we’ve put in place here,” he says, such as its recentadoption of SAP’s enterprise resource planning (ERP) system as a commonplatform for its divisions. “We need an efficient flow of data to optimize ourdaily operations, both internally and with our 3PLs. So we have spent a lot oftime and resources on technology.”

Security is a company-wide concernfor BASF Corp., one of the fivelargest chemical companies in the world. Dan Pigott, director of NAFTAdistribution for the company, explains that in addition to usual securityconcerns, on September 12, 2001, BASF created a department to secure companypersonnel, manufacturing sites and distribution channels. Within three months,BASF had new procedures in place.

“Where previously for rail, for example, we wouldbutton up a car and put some seals on it, we now have fully documentedprocedures for inbound and outbound shipping by rail,” Pigott explains.

Chemical companies ship a greatdeal of hazardous product, so it’s critical for shippers to be aware of wherethose products are at any given moment, notes Doug Houseman, senior manager atconsulting firm Accenture. “We’restarting to see the leading chemical companies embracing some of the newesttechnologies to help with the process,” he says. “They’re looking at thingslike wireless technology to understand where trucks and railcars are at anymoment.”

BASF has a great deal of Chemical Weapons Convention (CWC)inventory. The CWC is an international body that prohibits the development,production, stockpiling and use of chemical weapons.

BASF is able to track and trace itsCWC inventory using Qualcomm technologyand landlines.

Pigott explains that BASF manages its CWC inventorycentrally, even on returns. Security is enhanced since outbound products arehandled by two bulk carriers, two full truckload carriers and threeless-than-truckload (LTL) carriers, all having Qualcomm technology andlandlines. For returns BASF uses LTLs exclusively, believing that productdamage is minimized because it comes back in a managed fashion.

“I have a button on my [computer]right now that tells me where all our CWC inventories are, how much we areproducing, where the last shipment’s origins and destinations are, where theshipments are scheduled to go — and we can re-route them,” says Pigott. “Wehave letters going to group logistics managers within all of our business unitswith procedures in place to inform our customers they have a CWC shipmentarriving that will need special handling.”

Supply chain complexity for thechemical industry demands the use of technology or outsourcing operations tothird parties.

“Chemical products flow through avariety of channels — via pipeline, marine, rail and truck — and there aresubstantial distribution networks with multiple distribution centers,” saysAccenture’s Houseman. “Very few industries deal with that kind of complexity inshipping. Additionally, there is a plethora of products, especially on thepolymer and specialty chemical side. It’s not uncommon to see hundreds ofdifferent products that have to be successfully deployed to meet customerdemand.”

To meet that demand, PolyOne’swarehouse operations store both raw materials and finished products, supportingits network of 36 manufacturing plants. It also has 25 regional distributioncenters (DCs) separate from manufacturing operations. Those DCs are located inmajor market areas in the U.S.

“We have a separate distributionbusiness, whose primary function is to provide local inventory availability anddelivery service to customers,” explains Feliccia. “But we also use thedistribution regional warehousing network to service customers for ourmanufacturing business units.”

At BASF, distribution functions aresplit in two — products at rest and products in motion.

“For products in motion in thethree NAFTA countries,” explains Pigott, “we concentrate on how to leverageBASF’s size and diversity to the commercial marketplace in commercial activity.With products at rest, we use regional DCs in major metropolitan area.” Locationsinclude Toronto, Chicago, Detroit, Atlanta, Houston, the U.S. Northeast and twoDCs in Mexico.

Space for hazardous materials is ata premium in California, so BASF operates three warehouses in Los Angeles as avirtual DC. The company’s current strategy is to close its smaller warehouses,and move that inventory into regional DCs.

The primary mode of transportationfor the chemical industry is rail, Houseman observes. “You see a mixture ofleased versus owned assets,” he says, “although it is client-specific anddependent on the company’s financial cost structure. Typically there is a 50-50blend of leased versus owned assets. Companies usually manage under a fullservice lease, outsourcing cleaning, maintenance and so forth.”

PolyOne ships by many modes. Ituses both bulk truck and rail shipments as well as package carriers. Thecompany leases its railcars from several sources. Although it doesn’t own itsrailcars, PolyOne does manage their maintenance and routing. The company alsomaintains a fleet of 100 company trucks, Feliccia adds. “They are dedicatedPolyOne trucks, but we outsourced their operation to Schneider Dedicated a couple of years ago.”

BASF moves 24,000 shipmentsannually — totaling 4 billion pounds of product — with a fleet of 3,800 railcars. “Predominantly we use leased cars,” says Pigott. “We only have a smallnumber of private cars that we are moving into the leased area.”

For its package deliveries, BASF uses a 3PL,outsourcing its operations to a logistics management solutions company in St.Louis.

“We have a centrally managed Rail Command Center,” says Pigott. “Wetried a 3PL for it, but felt thatknowledge and experience was better managed internally because the third partywasn’t bringing any additional value to the corporation. We are findingproductivity advances by working directly with the railroad.”

In mid-September, BASF beganoutsourcing bulk truck operations to OmniLogistics for handling scheduling and reloadablefreight. The aim is to create round trips and continuous moves with bulktrucks between BASF’s manufacturing plants.

“We want to optimize raw material and finished goodsacross 40 manufacturing sites using our own core carriers,” Pigott says. “Weare creating a virtual private network.

“We are trying our best to supportthe bulk truck and package carrier,” he continues, “by requesting access totheir empty running miles so that we can fill them up on back hauls and bycontinuous moves. We want to take our distribution network and overlay it ontocarrier empty mile opportunities.”

Like a number of othermanufacturing industries, the chemical industry jumped on board the ERPbandwagon in the late 1990s, pointsout Andy Dvorocsik, a partner at Accenture. Only recently have chemicalcompanies begun focusing on streamlining their supply chains with collaborativetechnologies, but they’re catching on quickly to the ROI potential oflogistics-oriented solutions.

“Chemical companies now have theinformation and the tools available to them, so they’re beginning to focus onareas like finance, human resources, information technology and manufacturing,”Dvorocsik says. “But the big dollars are out there in supply chain. As we talkto financial executives in the chemical industry, they are beginning todescribe their operations as a logistics and distribution business. Five, 10,15 years ago, they certainly would’ve called themselves a manufacturingbusiness.”

“The logistics function at PolyOneis very visible,” says Feliccia. “The reason is that service reliability andconsistency is almost as important to our customer base as product quality.When working in an environment of decreased supply chain lead times, it putsthe squeeze on the logistics function.

“Everyone is trying to make theright decisions and institute the right processes and programs within theirorganization to take out cost,” he continues. “Our suppliers and customers aredoing the same things. Sometimes with everyone trying to optimize their owninternal operations, you don’t get the best overall result for the entiresupply chain. That just makes communication and cooperation between all partiesmore important.” LT



BASF Corp.

Chemical Weapons Convention

Omni Logistics

PolyOne Corp.



Schneider Dedicated

October, 2003

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